Consumers Got Short Shrift in Rate Case

Op Ed Published in the South Florida Sun-Sentinel

The Postal Service’s captive consumers will soon pay more to mail a letter. In a decision approved Nov. 14 by the USPS Board of Governors, most Postal prices will go up by 5.4 percent on Jan. 8. That will push the cost of a regular stamp to 39 cents.

Unfortunately, in this decision to raise rates, the voice of Aunt Minnie, the ordinary consumer, was ignored.

As a government monopoly, the USPS must appeal to a regulatory body, the Postal Rate Commission, whenever it wants to increase prices. The Commission then initiates a “rate case,” in which it hears opinions from all kinds of groups that would be affected, including big-business mailers like Time Warner and Hearst, non-profit customers, and the powerful postal labor unions.

Forty-six parties participated in the most recent rate case. Among these, the only one actively representing ordinary consumers was the Office of the Consumer Advocate. And far from supporting the rate increase, the OCA had sharp criticism. In fact, OCA opposed the settlement agreement.

As the OCA points out, the Postal Service estimates it will have $2.58 billion in cumulative net income at the end of 2005. This is a historical first: The USPS had been loss-making since it was set up in 1971 until 2003.

While the Postal Service has rightly celebrated its new success, it conveniently didn’t factor in the surplus when calculating its rate request.

The Postal Service’s primary argument for a rate hike was that it needed to cover a $3.1 billion payment to an escrow fund. (Under a 2003 law, Congress had required setting up the fund to finance benefit commitments.)

By the OCA’s calculation, though, the Postal Service needed at most a 0.8 percent rate increase to cover any shortfall caused by the escrow payment.

In fact, by approving the 5.4 percent increase, the Postal Rate Commission seems to have set aside the requirements of federal law. “Section 3621… unambiguously requires that the Commission recommend rates that produce a breakeven position,” the OCA notes.

The idea behind the breakeven law is that, as a government bureaucracy set up to serve citizens, the Postal Service is not supposed to exploit customers for profit. Yet that’s exactly what the 5.4 percent increase will allow it to do. “It would leave the Postal Service with a net income of nearly $1.64 billion,” the OCA noted.

The OCA has also identified flaws in USPS data. One study the Postal Service presented “suffers from a wholly inadequate database that must culminate in rejection of all of the study’s results,” the OCA wrote. In general, “the current accounting and data collection systems fail to provide the information needed to perform meaningful econometric analyses of Postal Service costs.”

Coming from the only active consumer voice in the rate proceedings, these charges should be taken seriously. Especially since it’s not just the OCA that had qualms about the Postal Service’s requested hike.

Ken McEldowney, executive director of the organization Consumer Action, observed that “the rate increase will impact low and moderate income consumers the hardest, and they are the ones who really don’t have an alternative to the post office.”

Moreover, even Ruth Goldway, one of the Postal Rate Commissioners and a longtime champion of consumer rights, expressed strong reservations – although she did approve the rate increase.

“The rates recommended in this decision . . . will not produce the economic benefits of efficient component pricing or most fairly divide institutional cost burdens between mailers,” she wrote.

The division of cost burdens she refers to is already unfair: The USPS charges the most money to individual letter-mailers, who as a group provide it with its biggest revenue stream, while providing big discounts to the corporations that send out junk mail.

The new 5.4 percent rate increase is not likely to be the end of the story. The Postmaster General has indicated that the USPS will request further rate hikes in the near future. Gene Del Polito, president of the Association for Postal Commerce, has observed that we can expect “the mother of all rate cases” in 2006.

Even more worryingly, the Postal Service is asking Congress for freedom to break an inflationary rate cap that would be imposed by pending legislation. If that happens, no holds would be barred on USPS rate hikes.

We can’t stop the arrival of the 39-cent stamp. We can ask lawmakers and the Postal Service to please, next time, consider the consumer.

Sam Ryan is a senior fellow at the Lexington Institute.